Supply Chain Risk Management An Emerging Discipline Gregory L. Schlegel Robert J. Trent CRC Press Taylors.Francis Group Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Croup, an informa business
Contents Preface About the Authors xiii xix Chapter 1 Supply Chain Risk Management: Setting the Stage 1 The Concept of Risk and Risk Management 2 Defining Enterprise Risk Management 3 Defining Supply Chain Risk Management 6 Why Focus on Supply Chain Risk Management? 7 Some SCRM Observations 10 Why Aren't We Prepared for SCRM? 10 Some Important Risk Concepts 11 Risk Event 11 Risk Exposure and Vulnerability 12 Risk Resilience 13 Risk Appetite 14 Risk Analysis or Assessment 15 Risk Response Plan 15 Risk Compliance 15 Risk Governance 16 Categorizing Risk 16 Other Ways to Look at Risk 17 Generic Risk Management Approaches 18 Risk Mitigation 18 Risk Avoidance 19 Risk Prevention 19 Risk Acceptance 20 Risk Sharing 20 Prevention versus Responsiveness 21 Concluding Thoughts 21 Summary of Key Points 21 Endnotes 22
vi Contents Chapter 2 Supply Chain Risk Management: The As-Is Landscape... 25 A Chronology of Supply Chain Risk Management 25 2009 26 2010 27 2011 30 2012 32 2013 34 Four Pillars of Supply Chain Risk Management 36 Supply Risk 37 Process Risk 37 Demand Risk 37 Environmental Risk 37 The Supply Chain Risk Management Adoption 39 SCRM Adoption 40 Concluding Thoughts 41 Summary of Key Points 42 Endnotes 43 Chapter 3 Building the Risk Management Foundation 45 Supply Chain Risk Management Enablers 45 A Supportive Organizational Design 46 Information Technology 51 Measurement Systems 53 Talent Management 54 Linking Supply Chain Risk Management and Supply Chain Strategy 56 Integrating Risk Management with Commodity Strategy Development 57 The Ultimate Risk Improve or Else! 59 Rallying around a Superordinate Measure 60 Reducing Supply Risk through a New Approach to Contracting 61 Systems Contracting Benefits 62 Concluding Thoughts 63 Summary of Key Chapter Points 64 Endnotes 65
Contents vii Chapter 4 Strategie Risk 67 What Is Strategie Risk? 68 Reducing Strategie Risk through Better Product Development 69 New Product Development Best Practices 69 Bringing New Product Development and Risk Management Together 73 The Art and Science of Not Getting Caught by Surprise 74 Protecting Intellectual Property 79 When Strategie Risk Becomes Strategie Reality 82 Concluding Thoughts 84 Summary of Key Points 85 Endnotes 86 Chapter 5 Hazard Risk 87 The Traditional World of Hazard Risk and Insurance 87 First-Party Commercial Property Insurance 89 Cargo Insurance 90 Cyber Insurance 90 Business Interruption Insurance 90 Contingent Business Interruption Insurance 91 Trade Disruption Insurance 91 Global Logistics Insurance 92 Quantifying Traditional Hazard Risk Insurance Requirements 94 Looking at the Thai Floods through a Risk Quantification Prism 100 Concluding Thoughts 101 Summary of Key Points 102 Endnotes 102 Chapter 6 Financial Risk 103 Understanding Financial Risk 104 Supplier and Customer Financial Viability 104 Supply Market Volatility 105 A Case Study of Supply Market Volatility 106
viii Contents Gelting Serious about Managing Financial Risk 107 Supplier Financial Health Assessment through Ratio Analysis 108 Bankruptcy Predictors 111 Private Company 112 Public Company 112 Qualitative Supplier Financial Risk Indicators 115 Assessment of Customer Creditworthiness 116 Hedging 118 Currency Risk Management Approaches 120 Concluding Thoughts 123 Summary of Key Points 124 Endnotes 124 Chapter 7 Operational Risk 127 Operational Risks 127 Supply Risk 128 Demand Risk 131 Process Risk 134 Environment/Ecosystems Risk 137 Business Continuity Flanning 139 Business Continuity Flanning Objective 140 The Business Continuity Life Cycle 141 BCP Exercises 144 Concluding Thoughts 145 Summary of Key Points 145 Endnotes 146 Chapter 8 Supply Chain Fraud, Corruption, Counterfeiting, and Theft 147 Some Key Concepts 148 Bribery 148 Counterfeiting 149 Fraudulent, Corrupt, Coercive, and Collusive Practices...150 Rules and Regulations 153 Consumer Financial Protection Bureau (CFPB) 153 Customs Trade Partnership against Terrorism (C-TPAT) 154
Contents ix Dodd-Frank Wall Street Reform and Consumer Protection Act 155 Foreign Corrupt Practices Act 155 Tools, Best-in-Class Practices, and Countermeasures 156 Fraud, Corruption, and Theft Tools 156 Supplier Co-Management 158 Addressing Corruption with Best Practices 159 Counterfeit Countermeasures 161 Concluding Thoughts 162 Summary of Key Points 163 Endnotes 163 Chapter 9 Emerging Risk Management Frameworks for Success... 165 What Is a Framework? 165 Frameworks Supporting the New Supply Chain Risk Management Discipline 166 Enterprise Risk Management (ERM) Framework 166 COSO ERM Framework 167 ISO Standards 168 Governance, Risk, and Compliance (CRC) 172 Risk Taxonomies An Operational Framework For SCRM 175 Leveraging ERM, CRC, and Risk Taxonomies 177 Benefits of ERM and CRC Frameworks 180 Concluding Thoughts 183 Summary of Key Points 183 Endnotes 184 Chapter 10 Using Probabilistic Models to Understand Risk 185 Defining the Models 185 Probabilistic versus Deterministic Modeling Tools 187 Risk Response Plans 191 Company Examples of Probabilistic Modeling 192 Scenario Flanning at DuPont 192 Stress Testing the Supply Chain at Bayer Material Sciences 194 Next-Generation S&OP at Huntsman 197
x Contents Concluding Thoughts 200 Summary of Key Points 200 Endnotes 201 Chapter 11 Using Big Data and Analytics to Manage Risk 203 What Is Big Data and Predictive Analytics, Really? 204 The Process of Successfully Leveraging Big Data for Maximum Benefit 207 Barriers and Challenges Moving Forward 209 Tools, Techniques, and Methodologies Supporting Big Data 210 How Early Adopter Companies Leverage Big Data 213 Consumer Packaged Goods 214 Dell Computers 214 Western Digital 215 Harley Davidson 215 Raytheon 216 European Electrica! Utility 216 Schneider 217 Concluding Thoughts 218 Summary of Key Points 219 Endnotes 219 Chapter 12 Emerging Risk Management Tools, Techniques, and Approaches 221 Become a Preferred Customer 221 Gaining Preferred Customer Status 223 Construct Supply Chain Heat Maps 225 Map the Supply Chain 226 Challenges When Mapping a Supply Chain 226 Supply Chain Mapping Guidelines 227 Decluster the Clusters 229 Clustering Gone Wild 230 Create a Flexible Supply Chain 231 Examples of Flexibility 232 Create a Risk War Room 237
Contents xi Manage Working Capital 238 Controlling Inventory through Perfect Record Integrity 239 Effeetive Demand Estimation and Management 240 Concluding Thoughts 242 Summary of Key Chapter Points 242 Endnotes 243 Chapter 13 Risk Measurement 245 Risk Measurement Validity and Reliability 245 Validity and Bridge Safety Measures 247 Supplier Performance Measurement Döing It Right 248 Quantified Risk Indexes 250 A Risk Index Example 251 Country Risk Indexes 251 Using Total Cost Measures to Manage Risk 252 Types of Total Cost Models 253 Supplier Capacity Estimate Measures 258 Emerging Supply Chain Risk Metrics 260 Value at Risk 260 Time-to-Recovery 260 Risk Exposure Index 261 Supply Chain Key Performance Indicators 261 Concluding Thoughts 264 Summary of Key Points 264 Endnotes 265 Chapter 14 Learning from Risk Management Leaders 267 Making Risk Management a Priority at Boston Scientific 267 Having the Right Tools 268 Navigating Threats at Boeing 269 Supplier Risk Assessment at IBM 271 IBMs Risk Management Tool 272 Using Supply Chain Mapping to Manage Risk at Cisco...274 Surviving a Near-Death Experience at Delphi 275
xii Contents Managing Strategie Risk through Collaborative Cost Management 276 A Collaborative Approach to Cost Management 277 Learning about Risk the Hard Way at J. C. Penney 279 Concluding Thoughts 280 Endnotes 281 Chapter 15 Future Directions in Supply Chain Risk Management... 283 Supply Chain Risk Management Predictions 283 An Evolving Risk Management Maturity Model 291 Supply Chain Risk Maturity Model 292 Visibility 292 Predictability 293 Resiliency 293 Sustainability 294 A Call to Action 294 Establish the Risk Leadership Team 294 Establish Risk Crisis Teams 295 Focus on the Risk-Management Enablers 296 Assess the Current State of Risk Management Preparedness 296 Perform Risk Assessments and Develop Risk Management and Business Continuity Plans 297 Gain Visibility across the Supply Chain 297 Benchmark Risk Management Practices against Industry Leaders 298 Develop or Obtain the Tools, Techniques, and Risk Protocols 298 Concluding Thoughts 298 Endnotes 299 Appendix: The Supply Chain Risk Assessment Tool 301 How You Might Utilize the Tool 301 Walking through the Questions-of-Discovery 303 How to Access the Tool 303 Index 305